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Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Taxes | 8. Income Taxes The components of the provision for income taxes are as follows:
|  | Years Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
($ in thousands) |  |  |  |  |  |  |  |  |
Current |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | - |  |  | $ | - |  |  | $ | - |
State |  |  | 341 |  |  |  | 49 |  |  |  | 467 |
Total current tax expense |  |  | 341 |  |  |  | 49 |  |  |  | 467 |
Deferred |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 19,707 |  |  |  | (104,227 | ) |  |  | (172 | )
State |  |  | 6,982 |  |  |  | (28,250 | ) |  |  | 218 |
Total deferred tax expense (benefit) |  |  | 26,689 |  |  |  | (132,477 | ) |  |  | 46 |
Total expense (benefit) for income taxes |  | $ | 27,030 |  |  | $ | (132,428 | ) |  | $ | 513 |
The following presents a reconciliation of the provision (benefit) for income taxes computed at the federal statutory rate to the provision (benefit) for income taxes recognized in the Consolidated Statements of Operations for the periods indicated:
|  | Years Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax at statutory rate |  | $ | 22,645 |  |  |  | 35 | % |  | $ | 4,547 |  |  |  | 35 | % |  | $ | 3,554 |  |  |  | 35 | %
State taxes, net of federal benefit |  |  | 4,793 |  |  |  | 7 |  |  |  | 6,222 |  |  |  | 48 |  |  |  | 442 |  |  |  | 4 |
Affiliated stock loss |  |  | - |  |  |  | - |  |  |  | 3,283 |  |  |  | 25 |  |  |  | (72,397 | ) |  |  | (713 | )
Contingency reserve |  |  | - |  |  |  | - |  |  |  | 27,911 |  |  |  | 215 |  |  |  | - |  |  |  | - |
Change in valuation allowance |  |  | (242 | ) |  |  | - |  |  |  | (174,527 | ) |  |  | (1,343 | ) |  |  | 69,109 |  |  |  | 681 |
Other, net |  |  | (166 | ) |  |  | - |  |  |  | 136 |  |  |  | 1 |  |  |  | (195 | ) |  |  | (2 | )
Income tax expense (benefit) |  | $ | 27,030 |  |  |  | 42 | % |  | $ | (132,428 | ) |  |  | (1,019 | )% |  | $ | 513 |  |  |  | 5 | %
Deferred taxes resulted from temporary differences between the amounts reported in the consolidated financial statements and the tax basis of assets and liabilities. The tax effects of temporary differences are as follows:
|  | December 31, |
|  | 2012 |  |  | 2011 |
($ in thousands) |  |  |  |  |  |
Deferred tax assets: |  |  |  |  |  |  |  |
Intangible assets |  | $ | 51,494 |  |  | $ | 65,380 |
Net operating losses |  |  | 49,001 |  |  |  | 63,886 |
Capital loss carryforward |  |  | 1,122 |  |  |  | 1,760 |
Other |  |  | 8,707 |  |  |  | 9,139 |
Gross deferred tax assets |  |  | 110,324 |  |  |  | 140,165 |
Valuation allowance |  |  | (1,611 | ) |  |  | (3,336 | )
Gross deferred tax assets after valuation allowance |  |  | 108,713 |  |  |  | 136,829 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | (10,884 | ) |  |  | (12,131 | )
Other investments |  |  | (906 | ) |  |  | (1,006 | )
Gross deferred tax liabilities |  |  | (11,790 | ) |  |  | (13,137 | )
Deferred tax assets (liability), net |  | $ | 96,923 |  |  | $ | 123,692 |
In prior reporting periods, the Company maintained a valuation allowance on substantially all of its net deferred tax assets since the likelihood of realization of those assets were less than more likely than not. At each reporting date, the Company evaluates the positive and negative evidence used to determine the likelihood of realization of all its deferred tax assets. Prior to December 31, 2011, the Company maintained a valuation allowance on substantially all of its net deferred tax assets as prior to that date the Company had demonstrated losses in recent years. During 2011, the Company determined that its demonstrated profitability and projections of future profits gave rise to sufficient positive evidence to conclude that it is more likely than not that a substantial portion of its deferred tax assets are realizable. As a result, the Company released a valuation allowance of $174.5 million during the year ended December 31, 2011. The Company maintained a valuation allowance in the amount of $1.6 million at December 31, 2012 relating to deferred tax assets on items of a capital nature as well as certain state deferred tax assets where the Company determined that at the current level of projected taxable income certain state tax attributes would not be realized prior to expiration. Primarily as a result of 2012 business changes and growth, the Company’s expected future state tax rate is expected to decrease as compared to 2011 in the current and future years. These changes resulted in the reduction of the recorded value of the Company’s state net deferred tax asset of $3.4 million. The Company may experience continued volatility in its state effective tax rate as the Company continues to experience changes in its business and as states seek to increase revenue. In 2009, Management concluded that a change of control for Internal Revenue Code Section 382 (“Section 382”) purposes had occurred. When a change in control occurs that meets the requirements of Section 382, the law limits the ability to utilize net operating losses and realized built in losses that existed as of the ownership date to offset future taxable income. The Company has calculated Section 382 limits on its applicable future benefits and accounts for these limitations in its financial statements. As of December 31, 2012, the Company had deferred tax assets of $39.7 and $0.3 million related to net operating losses and capital losses, respectively, for federal income tax purposes. The related federal net operating loss carryovers are scheduled to begin to expire in the year 2019. The related federal capital loss carryovers are scheduled to begin to expire beginning in the year 2014. As of December 31, 2012, the Company had deferred tax assets of $9.3 million and $0.8 million related to net operating losses and capital losses, respectively, for state income tax purposes. The related state net operating loss carryovers are scheduled to begin to expire in the year 2013. The related state capital loss carryovers began to expire in the year 2011. As a result of certain realization requirements of ASC 718, Compensation-Stock Compensation, as of December 31, 2012, the table of deferred tax assets and liabilities does not include $14.2 million of future tax return benefits. These benefits arose from tax deductions related to equity compensation that exceeded the compensation expense recognized for financial reporting purposes. Shareholder’s equity will increase as such benefits are utilized on the Company’s income tax returns. The Company recorded a valuation allowance of $1.6 million and $3.3 million at December 31, 2012 and 2011, respectively, with respect to certain temporary differences because management believes it is more likely than not that the Company will not realize the deferred tax assets associated with those basis differences. Activity in unrecognized tax benefits is as follows:
|  | Years Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
($ in thousands) |  |  |  |  |  |  |  |  |
Balance, beginning of year |  | $ | 34,139 |  |  | $ | - |  |  | $ | - |
Decrease related to tax positions taken in prior years |  |  | (191 | ) |  |  | - |  |  |  | - |
Increase related to positions taken in the current year |  |  | - |  |  |  | 34,139 |  |  |  | - |
Balance, end of year |  | $ | 33,948 |  |  | $ | 34,139 |  |  | $ | - |
In 2011, the Internal Revenue Service (“IRS”) issued a favorable private letter ruling (“PLR”) to the Company concerning the treatment of a loss related to the dissolution of an inactive subsidiary. As a result of the PLR, the Company recharacterized the $93.0 million of deferred tax assets previously reported in 2010 as capital in character to $89.0 million in deferred tax assets relating to net operating losses and intangible assets, with $4.0 million being concluded to be not utilizable under the provisions of Internal Revenue Code Section 382 after considering the impact of the PLR. In connection with this, the Company derecognized approximately $31.8 million of previously recorded gross deferred tax assets and related offsetting valuation allowance to account for uncertainties related to the loss. As of December 31, 2012 the Company has an unrecognized tax benefit of $31.8 million (net of federal benefit) related to this uncertain tax position. The PLR is based upon certain facts, assumptions and management representations, should these be successfully challenged by the IRS, the Company’s tax liability in a given year could be significantly impacted. The Company recorded no interest or penalties related to uncertain tax positions at December 31, 2012, 2011 and 2010. If recognized, $31.8 million of unrecognized tax benefits would impact the effective tax rate. Based upon the timing and status of its current examinations by taxing authorities, the Company does not believe that it is reasonably possible that any changes to the balance of unrecognized tax benefits occurring within the next 12 months will result in a significant change to its results of operations, financial condition or liquidity. In addition, the Company does not anticipate that there will be additional payments made or refunds received within the next 12 months with respect to the years under audit. The earliest federal tax year open for examination is 2008. The earliest open years in the Company’s major state tax jurisdictions are 1998 and 2005 for Connecticut and New York, respectively. The Company does not believe that any adjustment from any open tax year will result in a material change in the Company’s financial position.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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